Article

5 Ways to Build a Better Tax Plan

Build A Better Tax Plan

Taxes may be inevitable, but they're also something you have some power over. Here are five strategies to manage your tax burden going forward.

April 20, 2021
Build A Better Tax Plan
Important Disclosure: Content on our website and in our newsletters is for informational purposes only. The information provided may (or may not) directly apply to your situation. We recommend that readers work directly with a professional advisor when making decisions in the context of their specific situation.

You just finished your taxes, but it's not too early to make plans for next year.

It's important that as you build your plan, you think about some strategies to reduce or defer your taxes now or in the future. Here are some strategies to consider helping your financial plan become more tax-efficient:

1. Tax harvesting

Usually, this strategy is implemented near the end of the calendar year, but it can be done at any time. With tax-loss harvesting, you sell off holdings that have a loss position to offset the gains you've experienced from other sales.

The asset you sold is then replaced with a similar investment to maintain the portfolio's asset allocation and expected risk and return levels. It won't restore your losses, but it can ease the pain.

2. Using long-term gains and the 0% tax rate

For those who fall within the 15% tax bracket, your long-term gains are tax-free. Make it a habit to project your taxes and to look for tax opportunities every year as part of your plan.

3. Making IRA contributions

You have until the upcoming April’s Tax Day to make a Roth or traditional IRA contribution for that tax year, but why put it off? In fact, you could even use your income tax refund to fund it. Remember, a Roth creates tax-free income in the future, which is worth its weight in gold.

4. Using the "backdoor" Roth

Some people make too much money to contribute to a Roth IRA or to take a deduction on a traditional IRA. But you still can make a contribution to a traditional IRA without the deduction and later convert it to a Roth.

There's no tax due, except on growth in the account that you earn between the time of the contribution and the conversion. If you hold money in a traditional IRA for a short time only, the growth – and the resulting tax – should be small.

5. Exploring financial vehicles that can defer taxes on dividends, interest and capital gains

Tax deferral allows you to employ the triple compounding effect: It pays interest on the principle, interest on the interest and interest on the taxes that you would have paid if you were in an investment that was taxed annually.

This year – or any year for that matter – don't wait until the end of the year to think about the moves that could save you on your tax return.

Get together with your financial adviser or tax professional now to discuss a plan that will help you succeed in your goals.

Other content you may like

  • What Happened in August + Student Loans

    September 2, 2022
    In this first episode of the newly created Monthly Market Matters, Adam and Kyle take a brief look at the beginning of August and how things changed up by the end. Also, they share non-political insight into the government's Student Loan forgiveness and a proposed plan that is being discussed for going forward.
    Read this Article
  • What does it mean to be rich?

    What Does it Mean to Be Rich?

    November 2, 2023
    If we set unrealistic expectations for ourselves, we never reach the satisfaction of true wealth. Many of our expectations can be generated unconsciously by the people we are surrounded by, combined with that age old stumbling block of comparison. Often our feelings of poverty or wealth have nothing to do with a balance sheet. How do you define wealth? This article offers some interesting perspectives to consider.
    Read this Article
  • hope with peaceful color background and dandelion blowing in the wind

    Hope and Life after COVID-19

    April 4, 2020
    Hope and Life After COVID-19 There is little doubt that a time will come when we say the worst of is behind us, but life after COVID-19 will likely look much different. Few events are as truly worldwide as this or have had such a rapid impact on shaping our daily lives and routines.  Our […]
    Read this Article
  • Crafting a Rich Life in Retirement

    July 8, 2024
    To live a rich retirement life, begin with envisioning what brings you joy and fulfillment. From there you can use these strategies to maximize the assets you have. By focusing on what matters most to you, you can combine your financial goals with a plan that works to ensure that your retirement years are not just comfortable, but truly enriched with the beauty and depth of life’s experiences.
    Read this Article
  • The link you have selected is located on another server. The linked site contains information that has been created, published, maintained, or otherwise posted by institutions or organizations independent of this organization. We do not endorse, approve, certify, or control any linked websites, their sponsors, or any of their policies, activities, products, or services. We do not assume responsibility for the accuracy, completeness, or timeliness of the information contained therein. Visitors to any linked websites should not use or rely on the information contained therein until they have consulted with an independent financial professional. Please click “Continue to Link” to leave this website and proceed to the selected site.
    phone-handset